How health insurance works
Health insurance protects you against the high costs of health care. It helps you pay for covered expenses for illness or injuries, prescription drugs and preventive care. You can choose from insurance plans that offer different premiums (rates) with different levels of coverage.
A health insurance example
Let’s say you need health care. Imagine that you’ve had a serious accident and you have $50,000 in covered medical expenses.
A sample health plan (see definitions of terms below):
- Deductible: $5,000
- Coinsurance: 20%
- Out-of-pocket maximum: $6,000
How it works
1. In this example, you’re responsible for the first $5,000 (your deductible).
2. Then, until you reach the out-of-pocket maximum, you’re responsible for 20% coinsurance. Since the expenses are high, you’ll reach $6,000.
3. Your health plan pays the rest of the covered expenses.
4. For the rest of the year, you won’t need to pay anything for covered medical expenses.
The costs for this incident
- You pay: $6,000
- Your health insurance pays: $44,000
- Total $50,000
Definitions
Deductible: The amount you’re responsible for paying for covered medical expenses before your health plan begins to pay each year.
Coinsurance: Shared costs between you and the health plan. For example, you pay 20% of costs and your plan pays 80%. (Some plans do not have coinsurance.)
Out-of-pocket maximum: The most you’re responsible to pay for covered medical expenses in a year.
A few other aspects of health insurance
Monthly rate: Generally speaking, you can pay a lower monthly rate (premium) for your health plan in return for a higher deductible. See individual and family plans from Blue Cross and Blue Shield of Minnesota.
Copay: Some plans also include copays, which are set prices (for example, $50 for an office visit) for some services.
Health savings account: Some plans work with a health savings account, which can help you save by paying for your deductible with tax-advantaged money.
